Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.

In April We Trust

There are plenty of positive catalysts lining up for next month.

It certainly feels good, but we've been here before. One monstrous rally gets wiped clean after a day or two of regret selling. That's just how things go in bear markets.

However, despite all of the gloom and doom, I've been feeling pretty good about April. Yes, April.

January was a disaster. February was a horrorshow. I'm willing to concede that March may not be a savior. April, however, is when I see a lot of favorable things clicking to get the market turning in the right direction again. Let's go over my reasons to be cheerful, instead of fearful.

1. The federal tax credit is comingApril Fool's Day is a special day around Fooldom. It will also be a special day for your paycheck.

As part of the federal Making Work Pay Tax Credit program, roughly 95% of the country will be taking home a little more of their pay. Workers making less than $75,000 will receive $400 for the year. Couples making less than $150,000 will receive $800. It will come in the form of beefier paychecks, to the tune of roughly $33 a month.

This doesn't sound like much, I know. However, at a time when the country can use a psychological boost, the perceived raises will provide a welcome contrast to the salary cuts and layoffs that have scarred morale over the past few months.

Some will save the money or pay down their credit cards. Others will treat it as disposable income, which means one more night at the movies, dinner out, or paying for a satellite radio subscription or cell-phone upgrade.

No one is making a big deal about April's payroll shift because they don't think it will matter. I think it will.

2. Earnings season is comingBy mid-April, public companies will step up to peel back the curtain on their first-quarter performances. No one expects the numbers to be pretty. Consumers are freezing their spending habits, while companies react to a lack of demand by laying off employees to keep supply in check.

The warning signs are there, but analysts are all over it. The pessimism has already been baked into many of Wall Street's profit targets for the country's bellwethers.

Company

Current

Quarter EPS

Year Ago

EPS

Apple(NASDAQ:AAPL)

$1.08

$1.16

Dell(NASDAQ:DELL)

$0.23

$0.38

Amazon.com(NASDAQ:AMZN)

$0.31

$0.34

Intuitive Surgical(NASDAQ:ISRG)

$1.10

$1.12

Intel(NASDAQ:INTC)

$0.02

$0.25

Source: Yahoo! Finance.

In other words, analysts are already braced for these companies to post declines in year-over-year profitability next month. Keep in mind that Apple, Dell, and Amazon blew past Mr. Market's expectations earlier this year. Intuitive Surgical and Intel simply matched Wall Street's profit targets. However, even during this economic downturn, it's not as if any of these companies find that analysts are overestimating their earnings power.

In addition, consider the impact of the serious cost-cutting and layoffs at many of these companies. Microsoft(NASDAQ:MSFT)announced layoffs for the first time ever this year, and Yahoo!(NASDAQ:YHOO) is issuing its own pink (or possibly purple?) slips. Companies whittling down their headcounts -- and even the rare ones keeping their workforces intact -- are also cutting costs elsewhere. What do you think this will do for corporate margins?

Revenue will unavoidably take a hit this quarter across Corporate America. But some companies will do better than others in squeezing enough out of the top line to spread on the bottom line.

If I'm right, and we're not talking about fiscal Armageddon, investor confidence may bounce back once bellwethers deliver better-than-expected earnings.

3. Tax rebatesShellshocked taxpayers are begrudgingly filling out their 2008 tax returns now. Granted, not everyone is getting money back from Uncle Sam. However, those on the receiving end of a rebate check will likely get a sum larger than the federal tax credit that will start showing up in paychecks come April.

That may not be as significant -- and universal -- a catalyst as the first two reasons why I'm pumped about April, but it's another positive influence on discretionary income, which will have to improve to get the economy moving again.

I know there are much bigger fish to fry in the banking and real estate sectors that got us into this mess. But if the economy -- and the stock market -- has any chance of a quick recovery, it's going to start with the masses. That may be a simpleton's approach, but I've been called worse.

Longtime Fool contributor Rick Munarriz is hoping that April showers do more than bring us the flowers that bloom in May. He does not own shares in any of the stocks in this story. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool's disclosure policy wishes someone would tell it what May flowers bring.

Author

Rick has been writing for Motley Fool since 1995 where he's a Consumer and Tech Stocks Specialist. Yes, that's a long time with more than 20,000 bylines over those 22 years. He's been an analyst for Motley Fool Rule Breakers and a portfolio lead analyst for Motley Fool Supernova since each newsletter service's inception. He earned his BBA and MBA from the University of Miami, and he splits his time living in Miami, Florida and Celebration, Florida.
Follow @market